Helping a Friend Get Started with Financial Planning

A tropical friend, who I will undeniability Carol for this article, wanted to meet to discuss whether she should get a Financial Planner. Here is her situation and what she is interested in learning:

Carol and her husband were good savers and earned pensions and Social Security. He passed yonder a couple of years ago without a prolonged illness. Their focus had been on healthcare needs and not on financial planning. She moreover received an inheritance from her parents. Carol explained that she had savings scattered at multiple banks in savings accounts, Inherited IRAs, Traditional IRAs, and Roth IRAs. She had questions well-nigh why she should invest when her living expenses were met with pensions and Social Security. We established that her preliminary financial goals were 1) to leave an inheritance to her children, 2) to simplify her finances, and 3) to manage taxes efficiently.

Over the past few months, we went over most of the information in this article. Carol assisted me in writing this vendible to share her experiences. This vendible is divided into the pursuit sections:

• Section 1: Financial Literacy
  Section 2: Assessing Needs and Goals
  Section 3: Financial Institutions and Advisors
  Section 4: Fidelity Versus Vanguard
  Section 5: Evaluating Types of Finance and Funds
  Section 6: Setting up a Tax-Efficient Worth at Vanguard
  Section 7: The Next Steps

FINANCIAL LITERACY

Carol has a lot of money in savings finance and document of petrifaction ladders at variegated banks. I showed her that her wall was paying 1.5% while a money market at Vanguard was paying over four percent. Carol asked, “What is a money market?” Carol is an intelligent person who wants some assistance in rhadamanthine increasingly financially literate. For this reason, I spent some time explaining stocks, bonds, bilateral funds, and mart traded funds.

Anna and I helped set Carol up with a computer and virus protection. I set up a web browser with the pursuit links so that she could research financial information at her leisure. 

• Mutual Fund Observer | .. a site in the tradition of Fund Alarm
• Bloomberg Originals
• Morningstar | Empowering Investor Success
• Insider (businessinsider.com)
• Star Ratings | BauerFinancial
• Vanguard: Helping you reach your investing goals | Vanguard
• Fidelity Investments – Retirement Plans, Investing, Brokerage, Wealth Management, Financial Planning and Advice, Online Trading.

ASSESSING NEEDS AND GOALS

Carol’s Spending Needs

Carol and I started by understanding her situation, including her spending needs, as follows:

1. Pensions and Social Security imbricate expenses.
2. Has a net worth of several million dollars.
3. Would like to relocate closer to her children within a year
4. Would like money misogynist to imbricate emergencies.
5. Her money is mostly in low-yielding savings accounts.
6. Investments are driving up her taxes.
7. Her resources are scattered over many financial companies.

The Skillet Approach

We went over “The Skillet Tideway to Retirement Allocation“ by Christine Benz at Morningstar. Ms. Benz describes having unbearable money in inobtrusive Skillet #1 to meet near-term living expenses for one or increasingly years. Moderate Skillet #2 contains living expenses for the next five or increasingly years. Aggressive Skillet #3 contains investments that won’t be needed for longer periods of time.

Understanding Carol’s Risk Tolerance

I showed Carol how stocks and immuration can be combined to reduce volatility. I used Portfolio Visualizer to compare how one million dollars invested in the inobtrusive Vanguard Wellesley (VWIAX), moderate Vanguard Wellington (VWELX), and the S&P 500 would have grown over the past thirty years. We looked at the final wastefulness compared to the drawdowns. We discussed that this was a simplified example and, in reality, instead of owning one fund, she should follow the skillet tideway to match spending needs.

Figure #1: Growth of One Million Dollars

I then built three portfolios using Portfolio Visualizer to represent a Simple Tax Efficient portfolio, a Low Volatility Portfolio, and a Less Tax Efficient Portfolio with higher returns. We discussed that the returns were surpassing taxes, and the one that was weightier for her might depend on what tax subclass that she is in. We moreover talked well-nigh rebalancing the portfolios to maintain a resulting typecasting to the funds.

Figure #2: Growth of Tax Efficient Portfolios

I asked her how she would finger if she lost 20% to 50% of her financial resources in a recession. Carol said that she would be well-appointed with a stock-to-bond ratio between forty and sixty percent.

Developing Goals

Once we had a firm understanding of what is available, we were ready to pinpoint some wholesale financial goals:

1. Leave a tax-efficient inheritance for her children.
2. Have assistance managing her assets.
3. Simplify finances.
4. Manage taxes increasingly efficiently.
5. Improve her financial literacy.

FINANCIAL INSTITUTIONS AND ADVISORS

Carol asked me how to find a Financial Counselor and how she would know if they were right for her. The most important criteria for me are that the Financial Counselor listens to my concerns, understands my situation, puts my interests first, and is financially knowledgeable. Surprisingly, most potential advisors have not passed this simple test. I told Carol that she should interview potential Advisors, and if she felt that they weren’t listening to her and putting her needs first, then they weren’t right for her.

Does Carol (or Anyone) Need a Financial Advisor?

Dr. James Dahle wrote “The Value of a Financial Advisor” in The White Coat Investor, discussing the pros and cons of using an counselor from the perspective of an investor. For me, it comes lanugo to spending the time to educate yourself on the complexity of investing and the ever-changing environment. The main wholesomeness for me is that it provides my wife with someone to requite guidance in specimen I pass yonder unexpectedly. The second wholesomeness is to help me stay up-to-date as I age. I like a hybrid tideway between using an counselor and Do-It-Yourself.

Fraud

Fraud and incompetence should be major concerns for any investor seeking financial advice. Bernie Madoff comes to mind immediately as someone whose $65 billion Ponzi scheme tabular during the financial slipperiness in 2008. Ginger Szala at Think Counselor describes just a sampling of financial fraud in “12 Worst Financial Advisors in America: 2016”. One can minimize the risk of fraud by selecting a good windfall manager or financial advisor(s) and keeping it simple.

Largest Windfall Managers

We reviewed where Carol’s money was invested, and she expressed a desire to consolidate her money. A good place to start is America’s Top 50 Windfall Managers by ADV Ratings. BlackRock, Vanguard, Fidelity, State Street Global Advisors, and Morgan Stanley are the five largest, with at least three trillion dollars in resources under management. We then reviewed the IRA Finance considered “best” by Forbes Advisor, Nerdwallet, and US News.

Financial Advisors

“Financial Advisors” is often used synonymously with “Asset Managers,” but they can be distinct. Once you have selected an Windfall Manager such as Vanguard, you may moreover select an Independent Financial Planner. For example, John Woerth, Senior Communication Adviser at Vanguard, wrote “How To Select a Financial Advisor,” which is a good summary of how to find an counselor and verify their credentials.

“Best” Financial Advisors is subjectively based on what an investor is most interested in. “Best Financial Advisors” by Ashley Eneriz at Consumer Affairs and “10 Weightier Financial Advisors of April 2023” by Alana Benson at Nerdwallet provide comparisons. Catherine Brock at Forbes has some good guidelines on how to self-mastery an interview in “16 Important Questions You Should Be Asking Your Financial Advisor”.

Financial Advisors at Financial Windfall Managers

I started using Fidelity Executive Services on a limited understructure over five years ago through my employer. Upon retirement last year, I started using Fidelity Wealth Services to manage some accounts. My preference is to use a Financial Counselor from the Windfall Manager rather than an Independent Financial Advisor. I like companies that use a team tideway or have solid practices in place. I have talked with Vanguard representatives well-nigh their newsy services but have not used them.

I like Vanguard for its simplicity, philosophy, low-cost funds, and visitor structure and policies. In my opinion, its educational and tampering tools were lacking but are improving. I like Fidelity for its financial resources and tools, range of products, merchantry trundling approach, and services. Their fees are unelevated the industry stereotype but higher than Vanguard’s in many respects. Unelevated are the Customer Relationship Summaries for Fidelity and Vanguard describing services and fees.

• Form CRS Conversation Starters by Vanguard
• Customer Relationship Summary by Fidelity

Verifying Your Investment Counselor

Once you have identified a potential Adviser, there are several sources that can squire you to verify their credentials:

Check Out Your Investment Professional by the U.S. Securities and Mart Commission
BrokerCheck by the Financial Industry Regulatory Authority (FINRA)
Investment Adviser Public Disclosure by The U.S. Securities and Mart Commission
How to Check Your Financial Advisor’s Credentials by Dana Anspach at The Balance.

FIDELITY VERSUS VANGUARD

Carol expressed an interest in knowing increasingly well-nigh Fidelity and Vanguard. I provided her with the pursuit articles, comparing them. In general, Fidelity is weightier for frequent traders, for ease of use, research and data, technology, and retirement planning assistance. Vanguard is largest for long-term/retirement investors, buy-and-hold investors, and those who prefer low-cost investments, simplicity, and alphabetize funds.

• “Vanguard vs. Fidelity: 2023 Comparison” by Arielle O’Shea at Nerdwallet
  “Vanguard vs. Fidelity: Which Is Largest for You?” by Kat Tretina at U.S. News
  “Vanguard vs. Fidelity: Which Brokerage Is Best?“ by Ashley Kilroy at SmartAsset
  “Vanguard vs. Fidelity“ by Jean Folger at Investopedia

Companies change, and Advisors change. I like to diversify wideness financial institutions as well as wideness windfall classes considering I can segregate the weightier products and services from each. This is the preliminary conclusion that Carol reached as well.

How Will Fidelity or Vanguard Manage Carol’s Money?

Ultimately an investor needs to talk to the Financial Counselor to determine how they will work together to manage the client’s money considering the services are highly customizable. I chose to set up my finance that are managed in bilateral funds and mart traded funds.

Both Fidelity and Vanguard have a range of Newsy services, from robo-investing to Private Wealth Management, as shown in the links below. To get a full sense of what they offer, I suggested that Carol undeniability both Fidelity and Vanguard and ask them well-nigh their newsy services.

What I suggested as a starting point for Carol is considering the Personal Counselor Select at Vanguard, which has a minimum of $500,000 and fees of 0.30%. With this, she gets a defended counselor and a host of other services. By comparison, at Fidelity, I suggest Fidelity Wealth Management which has a defended counselor and a minimum of $250,000 in resources managed through Fidelity. Fees range from 0.50% to 1.5%, depending upon the value managed. Another option is Fidelity Wealth Services and Portfolio Newsy Services, which will manage your account.

• Vanguard Advice
• Fidelity Wealth Management

Investment Approach

Fidelity tideway is described in The Merchantry Trundling Tideway to Equity Sector Investing by Fidelity Institutional Insights. I find the Insights from Fidelity Wealth Management to be highly informative.

Over the past decade, I talked to Vanguard representatives twice well-nigh managing a portion of my financial assets. While I like Vanguard, their newsy services were not a good fit for me. Helping Carol has led me to review what is new at Vanguard. I ran wideness the recent wares unelevated that describe some of Vanguard’s approaches, and they are on my reading list for June. In particular, I am curious well-nigh the Time-Varying Portfolio. Roger Aliaga-Diaz, Global Head of Portfolio Construction, wrote For a Disciplined Investor, Allocations That Fluctuate where he says:

“It’s important to understand two things well-nigh our time-varying windfall typecasting approach. It’s not for everyone; it’s intended for investors willing to winnow a level of zippy risk, specifically the risk that our models may not virtuously capture economic and market dynamics. And we recommend that investors make use of professional financial translating in relation to time-varying portfolios.”

• Vanguard’s Principles for Investing Success
• Global Equity and Fixed Income Outlook
• Two Approaches to Windfall Allocation (Time Varying vs Tactical Windfall Allocation)
• Our Time-Varying Portfolio and a Dynamic Economy
• Vanguard’s Portfolio Construction Framework
• Sophisticated Modeling and Forecasting
• Portfolio Construction: Principles Inform Possibilities
• Time Varying Windfall Allocation

EVALUATING TYPES OF ACCOUNTS AND FUNDS

I believe Carol will goody from a Financial Counselor helping to set up a withdrawal strategy, manage taxes, understand investment products, and rebalance a portfolio. Carol’s situation is complicated considering she has well-nigh six variegated types of accounts.

Withdrawal Strategy

Even though Carol has pensions and Social Security to meet spending needs, she is going to have to make withdrawals from inherited IRAs and Traditional IRAs. With her goal of passing withal an inheritance to her children, she needs to take into worth taxes. “How to Make Your Retirement Worth Withdrawals Work Weightier for You” by T. Rowe Price was particularly insightful for me considering it describes taking velocious withdrawals from a Traditional IRA and putting the money into an after-tax, tax-efficient account.

“From Resources to Income: A Goals-Based Tideway to Retirement Spending” at Vanguard Institutional

Taxes

Dividends and interest are taxed as ordinary income, usually at a higher rate than wanted gains. A large portion of Carol’s resources are in savings accounts, and she has to pay taxes on this income. Carol and I looked at municipal yoke funds and municipal money markets as a way of reducing taxes. Income levels can moreover impact Medicare income-adjusted premiums, which need to be considered. Passing withal an Inherited Traditional IRA can complicate taxes for heirs considering they have to withdraw the money within ten years.

Tax Efficient Accounts

It was timely that Christine Benz at Morningstar wrote “Tax-Efficient Retirement-Bucket Portfolios for Vanguard Investors” while Carol and I were working on financial planning. The vendible describes Conservative, Moderate, and Aggressive tax-efficient portfolios of Vanguard funds using the Skillet Approach.

• “Vanguard Tax-Managed Wanted Appreciation Fund Admiral Shares (VTCLX)”
  “Vanguard Tax-Managed Balanced Adm VTMFX” Morningstar
  “Vanguard Tax-Managed Balanced Fund Admiral Shares VTMFX” Vanguard

Rebalancing a Portfolio

Rebalancing sounds simple but involves knowing when and how often to rebalance and what the tax consequences are.

• “3 Rebalancing Tips to Fine-Tune Your Portfolio” by Vanguard.
  “Monitoring Your Risk Level and Rebalancing” by Vanguard.

The Skillet Tideway with Tax Advantaged Accounts

I put together the table unelevated to explain Carol’s accounts, taxes, and possible withdrawal and investment strategies. “Years” refers to when money will be withdrawn for spending, required minimum distributions, or tax rules. “Risk” refers to whether the Skillet is intended for spending, which should be invested conservatively, or long-term investments. I then listed possible Vanguard funds based on risk and tax efficiency. Carol and I then matched her finance with the Buckets. Some of the Buckets were eliminated as we specified a withdrawal strategy. Less tax-efficient, higher risk/reward investments should be well-matured in Roth IRAs.

Table #2: Combined Skillet and Finance by Tax Status

SETTING UP A TAX-EFFICIENT ACCOUNT AT VANGUARD

Carol decided that she wanted to unshut an after-tax worth at Vanguard to manage longer-term tax-efficient investments. I helped her set up the worth and transfer the funds from a savings account. Carol and I reviewed the portfolios described by Christine Benz, and she decided to invest in “Vanguard Tax-Managed Balanced Admiral (VTMFX),” which maintains roughly a 50% typecasting to stocks as a self-directed portion of her portfolios. The goody of this fund is that it is an all-in-one fund that Vanguard manages for tax efficiency, and Carol doesn’t have to worry well-nigh rebalancing. Table #3 contains some risk and reward metrics from Bilateral Fund Observer Multi-Search.

Carol raised a snooping well-nigh the US economy going into a recession this year and the stock market falling. I explained that she wanted the worth and fund to be a long-term investment and to work in a tax-efficient manner, so it should be “buy and hold”. I well-set with her that a recession is likely and that short-term interest rates were high. We invested the money in the Vanguard Municipal Money Market Fund (VMSXX), which currently has a seven-day SEC yield of 3.19%, and put a modest value in Vanguard Tax-Managed Balanced Fund Admiral Shares (VTMFX). Over the undertow of the year, we will move

Table 3: Vanguard Tax-Managed Balanced Fund Admiral Shares (VTMFX)

THE NEXT STEPS

Carol has identified a potential counselor at Fidelity and will be calling him to unshut an worth and discuss financial newsy services. She will moreover be calling Vanguard to discuss newsy services.

CLOSING THOUGHTS

My repletion level has improved dramatically. Surpassing working with Lynn, the only place that I felt well-appointed putting my money was in savings finance at banks plane though I knew the yields were low. I have a largest understanding of the topics covered in this article. I now have a good set of financial tools to do my own research. We set up a tax efficient worth at Vanguard with security authorization. I will be contacting both Fidelity and Vanguard to evaluate whether I want to have them as Financial Advisors or manage a portion of my assets. What I will be looking for when I talk to them is how well they listen to me. I will take a step when and think over my options surpassing reaching a conclusion.

I have enjoyed helping Carol and am happy that she has learned so much. Investing is a passion of mine, but as a cancer-free cancer survivor, I remind myself that if I am not around, am I leaving my wife in a good position to manage money? I will read the wares on the Vanguard Time Varying Windfall Typecasting Model and set up an visit to see what Vanguard newsy services, if any, I may be interested in.

Best wishes to Readers on the same journey as Carol. I hope you found some of the information in this vendible informative.